Renewal of the controversial Generalized System of Preferences (GSP), a unilateral tariff cutting program for 119 developing countries, including large economies like Brazil and Indonesia, has made “good progress”, according to House Ways & Means trade subcommittee Chair Adrian Smith (R-NE-3). Smith said last week that lawmakers were moving ahead on a bipartisan bill to renew it and implement a new Miscellaneous Tariff Bill (MTB), another tariff cutting program for importers sourcing from anywhere, including China.
GSP’s tariff cuts lapsed at the end of 2020, and likewise no new MTB tariff cut petitions have been accepted since 2020. In February, 2022, both the House and Senate each respectively passed renewal legislation for GSP that would have also retroactively refunded importers since the lapse, and also authorized new MTB tariff cut petitions, but controversy in the larger trade package during reconciliation resulted in the trade package being dumped from the larger bill.
At a time of existential budget deficits and record trade deficits, prioritizing importers above American workers and producers is bad policy and bad politics.
GSP’s original rationale is from a long lost America
GSP was conceived of in the late 1960s and Congressionally launched in 1974. The program is ostensibly designed to favor developing countries who are “on the right track” developmentally. It rewards them by cutting tariffs for those countries, encouraging offshoring of production to them. While this may sound charitable, it results in situations like that currently playing out in Europe, where abundant wheat imports from Ukraine are causing a farm crisis in Europe.
While GSP was marketed as a development program, to coincide with other foreign aid, Wall Street and transnational enterprises were the major promoters., As explained in historical detail by CPA trade counsel Charles Benoit in September, their aim was to promote imports from countries where they were owed money. If those countries exported goods to the U.S., they would get dollars in return, enabling them to service dollar denominated loans. Now the U.S. is a net debtor nation, and so increasing imports to promote more dollars held overseas no longer fits the original reasons for the program.
The new narrative is that renewing GSP will “facilitate supply chain shifts out of China.” This is false, because while the GSP tariff cuts are enough to warrant spending on lobbyists and increasing some profits for some importers, the tariff cuts are not material enough to offset China’s price advantage. Indeed, the tariff savings may be zero thanks to the de minimis loophole. All the top products imported under GSP are also eligible for the de minimis. These goods imported with GSP are already imported duty-free from China under de minimis – like textiles and clothes. No producer sourcing textiles, for instance, from China will leave in order to get into GSP; there is no financial incentive to do so. In fact, renewing GSP would delight China and open new markets for them for numerous inputs. The rules of origin for GSP are astonishingly weak; only 35 percent of the appraised value must be from the developing country. And getting to that 35 percent is easy. Research, development, design, engineering, and blueprint costs count to 35%, as do the labor costs of supervisory, quality control, and similar personnel. GSP’s rule of origin is weaker than USMCA’s detailed requirements.
– “GSP Renewal Would Delight China”, Charles Benoit, Sept. 15, 2023
During a Feb. 20 discussion at the University of Nebraska’s Clayton Yeutter Institute of International Trade and Finance, Rep. Adrian Smith said that he expected Congress to renew GSP and – worse yet – give importers retroactive relief for duties paid on once-eligible products. This is a particular slap in the face to American farmers and ranchers – food importers get checks. Meanwwhile, Congress has missed its deadlines on a renewed farm bill last fall.
According to Congressman Smith, the main hurdle now for the Ways & Means Committee is how long they will renew GSP for this time. The further out the renewal, the bigger the hit to the U.S. Treasury.
He said lawmakers hope to extend GSP “as far as we can” because “the pattern has been that the lapse that does take place, it’s covered with retroactivity, and that kind of removes some of the urgency for doing it, renewing it and extending it when we need to.” Smith thinks importers are entitled to retroactive tariff refunds.
GSP did not always benefit the beneficiary countries, according to a CPA study on a compendium of academic reports on the topic in 2021.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
House GOP Trade Chair Expects To Legislate Billions in Tariff Refunds For Importers In Coming Weeks
Renewal of the controversial Generalized System of Preferences (GSP), a unilateral tariff cutting program for 119 developing countries, including large economies like Brazil and Indonesia, has made “good progress”, according to House Ways & Means trade subcommittee Chair Adrian Smith (R-NE-3). Smith said last week that lawmakers were moving ahead on a bipartisan bill to renew it and implement a new Miscellaneous Tariff Bill (MTB), another tariff cutting program for importers sourcing from anywhere, including China.
GSP’s tariff cuts lapsed at the end of 2020, and likewise no new MTB tariff cut petitions have been accepted since 2020. In February, 2022, both the House and Senate each respectively passed renewal legislation for GSP that would have also retroactively refunded importers since the lapse, and also authorized new MTB tariff cut petitions, but controversy in the larger trade package during reconciliation resulted in the trade package being dumped from the larger bill.
At a time of existential budget deficits and record trade deficits, prioritizing importers above American workers and producers is bad policy and bad politics.
GSP’s original rationale is from a long lost America
GSP was conceived of in the late 1960s and Congressionally launched in 1974. The program is ostensibly designed to favor developing countries who are “on the right track” developmentally. It rewards them by cutting tariffs for those countries, encouraging offshoring of production to them. While this may sound charitable, it results in situations like that currently playing out in Europe, where abundant wheat imports from Ukraine are causing a farm crisis in Europe.
While GSP was marketed as a development program, to coincide with other foreign aid, Wall Street and transnational enterprises were the major promoters., As explained in historical detail by CPA trade counsel Charles Benoit in September, their aim was to promote imports from countries where they were owed money. If those countries exported goods to the U.S., they would get dollars in return, enabling them to service dollar denominated loans. Now the U.S. is a net debtor nation, and so increasing imports to promote more dollars held overseas no longer fits the original reasons for the program.
The new narrative is that renewing GSP will “facilitate supply chain shifts out of China.” This is false, because while the GSP tariff cuts are enough to warrant spending on lobbyists and increasing some profits for some importers, the tariff cuts are not material enough to offset China’s price advantage. Indeed, the tariff savings may be zero thanks to the de minimis loophole. All the top products imported under GSP are also eligible for the de minimis. These goods imported with GSP are already imported duty-free from China under de minimis – like textiles and clothes. No producer sourcing textiles, for instance, from China will leave in order to get into GSP; there is no financial incentive to do so. In fact, renewing GSP would delight China and open new markets for them for numerous inputs. The rules of origin for GSP are astonishingly weak; only 35 percent of the appraised value must be from the developing country. And getting to that 35 percent is easy. Research, development, design, engineering, and blueprint costs count to 35%, as do the labor costs of supervisory, quality control, and similar personnel. GSP’s rule of origin is weaker than USMCA’s detailed requirements.
– “GSP Renewal Would Delight China”, Charles Benoit, Sept. 15, 2023
During a Feb. 20 discussion at the University of Nebraska’s Clayton Yeutter Institute of International Trade and Finance, Rep. Adrian Smith said that he expected Congress to renew GSP and – worse yet – give importers retroactive relief for duties paid on once-eligible products. This is a particular slap in the face to American farmers and ranchers – food importers get checks. Meanwwhile, Congress has missed its deadlines on a renewed farm bill last fall.
According to Congressman Smith, the main hurdle now for the Ways & Means Committee is how long they will renew GSP for this time. The further out the renewal, the bigger the hit to the U.S. Treasury.
He said lawmakers hope to extend GSP “as far as we can” because “the pattern has been that the lapse that does take place, it’s covered with retroactivity, and that kind of removes some of the urgency for doing it, renewing it and extending it when we need to.” Smith thinks importers are entitled to retroactive tariff refunds.
GSP did not always benefit the beneficiary countries, according to a CPA study on a compendium of academic reports on the topic in 2021.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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